Bulgarian Telecommunications Company (BTC), the country’s largest telecom firm by revenue that operates under the brand name Vivacom, is reportedly planning to acquire a stake of between 10% and 15% in its direct owner, Viva Telecom Bulgaria, for €43mn.

Vivacom will buy a stake in Viva Telecom Bulgaria from InterV, the parent company's owner, Capital Daily reported quoting two sources. The deal will enable the transfer of funds from Vivacom to its final owners, Bulgarian businessman Spas Roussev (46% stake), sanctions-hit Russian financial group VTB (20% minus one share) and the managers of the Bulgarian unit of VTB Capital – the brothers Milen and Georgi Velchev, as well as Krassimir Katev (combined 19%).

Roussev is best known for his close relationship with Simeon Saxe-Coburg-Gotha, Bulgaria’s last king and its prime minister from 2001 to 2005, and some of his ministers, including Milen Velchev, who was finance minister at the time.

In November 2015, Roussev won a tender for BTC with a bid of €330mn. The sales procedure for BTC was launched by VTB Capital, the investment banking unit of VTB, in late August 2015, after BTC’s Luxembourg-based holding company, InterV Investment S.a.r.l. (InterV), failed to repay a €150mn bridge loan, which matured in May 2015.

The deal involved the sale of 100% of shares in InterV, and was successfully completed on August 30. To partly finance the transaction, VTB Bank extended a €240mn facility.

The deal has been attacked in court by Russian businessman Dmitri Kosarev, who asserts that he is the majority owner of BTC, having acquired the shares of fugitive Bulgarian tycoon Tsvetan Vassilev. Vassilev was also the majority shareholder of Corporate Commercial Bank (Corpbank), which collapsed in mid-2014 wiping out €1.88bn of taxpayers' money.

A likely reason the Bulgarian owners are resorting to this scheme in order to receive money from Vivacom, instead of voting for a dividend, is that Bulgaria’s commission for withdrawal of criminal assets has imposed distraint on Viva Telecom Bulgaria, which will be the first to receive the dividend. Moving the dividend further up the chain of Vivacom’s parents will have to be approved by the Bulgarian commission, and this will be slow and uncertain, Capital Daily commented.

Roussev’s consortium has appointed its managers at InterV. However, the attempts to change the management of Vivacom have been blocked by Kosarev’s company Empreno Ventures.

The former state-owned fixed line monopoly, BTC reported revenues of BGN865mn (€442mn) in 2015. The company remains the biggest player in the fixed-line segment in Bulgaria and is also the third largest mobile operator after the local units of two much larger international telecom operators, Telekom Austria and Norway's Telenor.

On September 12, credit ratings agency Standard & Poor's (S&P) Global Ratings raised its long-term corporate credit rating on Vivacom to B+ from B- with a stable outlook. S&P also removed the rating from CreditWatch.

Vivacom has an outstanding corporate bond – a €400mn senior secured note traded on the Irish Stock Exchange. On September 12, S&P also raised its long-term issue rating on the company’s senior secured debt to B+ from B-.

The agency said that while rating upside is remote in the following 12 months, it may downgrade Vivacom if the refinancing risks at the company or at its parent are not addressed by early 2017, or if further decreases in profitability drive the group's adjusted debt to Ebitda to above 4.5x.

In another development, on February 7 the Sofia court of appeal allowed the registration of a pledge of Viva Telecom Bulgaria in favour of VTB as a security for the €240mn loan, Capital Daily reported. The move is significant, because so far all attempts for changes in the boards of BTC and Viva Telecom Bulgaria have been blocked in court by Empreno Ventures. In the case of a default on the loan, VTB will be able to sell 57% of Viva Telecom Bulgaria, as the commission for withdrawal of criminal assets has imposed distraint on the remaining 43% stake.

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